AGRICULTURE DEVELOPMENT: WAY TO MOVE OUT OF POVERTY

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1 International Journal of Education & Applied Sciences Research, Vol.2, Issue 10,Nov- Dec , pp ISSN: (Online) ISSN: (Print) AGRICULTURE DEVELOPMENT: WAY TO MOVE OUT OF POVERTY Dr. Rajesh Pal Associate Professor Department of Economics Mahatma Gandhi Kashi Vidyapith Varanasi, U.P, India Abstract Agriculture contributes to development as an economic activity, as a livelihood, and as a provider of environmental services, making the sector a unique instrument for development. In the 21st century, agriculture continues to be a fundamental instrument for sustainable development and poverty reduction. Three of every four poor people in developing countries live in rural areas billion living on less than $2 a day and 880 million on less than $1 a day; most depend on agriculture for their livelihoods. The worlds of agriculture are vast, varied, and rapidly changing, with the right policies and supportive investments at local, national, and global levels. Today s agriculture offers new opportunities to hundreds of millions of rural poor to move out of poverty. Pathways out of poverty open to them by agriculture include smallholder farming and animal husbandry, employment in the new agriculture of high-value products, and entrepreneurship and jobs in the emerging rural, non-farm economy. This paper focuses on the study of agricultural development for transforming countries in general and India in particular. In this paper agriculture consists of crops, livestock, agro-forestry, and aquaculture. It does not include forestry and commercial capture fisheries because they require vastly different analyses. The paper finds that the growth in agriculture and the rural non-farm economy is needed to reduce rural poverty and narrow the urban-rural divide in transforming countries. KEYWORDS: Disparity, Transforming Countries, Poverty, Hunger, Non-Farm. INTRODUCTION Agriculture is a vital development tool for achieving the millennium development goal (i.e. extreme poverty and hunger) that calls for halving by In the 21st century, agriculture continues to be a fundamental instrument for sustainable development and poverty reduction. Three out of every four poor people in developing countries live in rural areas, and most of them depend directly or indirectly on agriculture for their livelihoods. Asia s fastgrowing economies remain home to over 600 million rural people living in extreme poverty, and despite massive rural-urban migration, rural poverty will remain dominant for several more decades. Agriculture can work in concert with other sectors to produce faster growth, reduce poverty, and sustain the environment. Agriculture contributes to development as an economic activity, as a livelihood, and as a provider of environmental services, making the sector a unique instrument for development. As an economic activity, agriculture can be a source of growth for the national economy, a provider of investment opportunities for the private sector, and a prime driver of agriculture-related industries and the rural non-farm economy. As a livelihood, agriculture is a source of livelihoods for an estimated 86 per cent of rural people. It provides jobs for 1.3 billion smallholders and landless workers, farm-financed social welfare when there are urban shocks, and a Contact Us : info@arseam.com ; submit paper : editor@arseam.com download full paper : 7

2 Rajesh. P / Agriculture Development: Way to Move out of Poverty foundation for viable rural communities. Of the developing world s 5.5 billion people, 3 billion live in rural areas, nearly half of humanity. Of these rural inhabitants an estimated 2.5 billion are in households involved in agriculture, and 1.5 billion are in smallholder households 1. As a provider of environmental services, agriculture can create good and bad environmental outcomes. Managing the connections among agriculture, natural resource conservation, and the environment must be an integral part of using agriculture for development. The way agriculture works for development varies across countries depending on how they rely on agriculture as a source of growth and an instrument for poverty reduction. The contribution of agriculture to growth and poverty reduction can be seen by categorizing countries according to the share of agriculture in aggregate growth over the past 15 years, and the current share of total poverty in rural areas. This perspective produces three distinct rural worlds viz; i) Agriculture-based countries, ii) Transforming countries, and iii) Urbanized countries. In each the agriculture for development agenda differs in pursuing sustainable growth and reducing poverty. A country is known as agriculture-based countries where agriculture is the main source of growth, accounting for 32 per cent of gross domestic product (GDP) growth. The share of agriculture is large in gross domestic product, and most of the poor are in rural areas. In the agriculture-based countries, which include most of Sub-Saharan Africa, agriculture and its associated industries are essential to growth and to reducing mass poverty and food insecurity. Using agriculture as the basis for economic growth in the agriculture-based countries requires a productivity revolution in smallholder farming. Farming led strategies are particularly important in the agriculture-based countries, where farming is the main livelihood for a large share of rural households, as many as 71 per cent in Nigeria and 54 per cent in Ghana and Madagascar. Many of those households are subsistence oriented. Agriculture has a well-established record as an instrument for poverty reduction. But it can also be the leading sector of a growth strategy for the agriculture- based countries. That is why, for many years to come, the growth strategy for most agriculture-based economies has to be anchored on getting agriculture moving. Where women are the majority of smallholder farmers, failure to release their full potential in agriculture is a contributing factor to low growth and food insecurity. Doing this calls for innovative policy initiatives and strong political commitment. Market failures are pervasive, especially in the agriculture based countries, and there is a need for public policy to secure desirable social outcomes. The state has a role in market development by providing core public goods, improving the investment climate for the private sector and in better natural resources management by introducing incentives and assigning property rights. Agriculture thus offers great promise for growth, poverty reduction, and environmental services, but realizing this promise requires intervention by the government. In transforming countries, agriculture is no longer a major source of economic growth, contributing on average only 7 per cent to GDP growth, but poverty remains overwhelmingly rural. This group is typified by China, India, Indonesia, Morocco, and Romania. In transforming countries, which include most of South and East Asia and the Middle East and North Africa, rapidly rising rural-urban income disparities and continuing extreme rural poverty are major sources of social and political tensions. The problem cannot be sustainably addressed through agricultural protection that raises the price of food (because a large number of poor people are net food buyers) or through subsidies. Addressing income disparities in transforming countries requires a comprehensive approach that pursues multiple pathways out of poverty shifting to high value agriculture, decentralizing nonfarm economic activity to rural areas, and providing assistance to help move people out of agriculture. Urbanized country is that country where agriculture contributes directly even less to economic growth, 5 per cent on average, and poverty is mostly urban. Even so, rural areas still have 45 per cent of the poor, and agribusiness and the food industry and services account for as much as one third of GDP. Countries in Latin America and the Caribbean and many in Europe and Central Asia are included in this group (World Bank 2008: 04). In urbanized countries, which include most of Latin America and much of Europe and Central Asia, agriculture can help reduce the remaining rural poverty if smallholders become direct suppliers in modern food markets, good jobs Contact Us : info@arseam.com ; submit paper : editor@arseam.com download full paper : 8

3 International Journal of Education & Applied Sciences Research, Vol.2, Issue 10,Nov- Dec , pp ISSN: (Online) ISSN: (Print) are created in agriculture and agro-industry, and markets for environmental services are introduced. Countries follow evolutionary paths that can move them from one country type to another. China and India moved from the agriculture-based to the transforming group over the past 20 years, while Indonesia gravitated toward the urbanized. The private agribusiness sector has become more vibrant, especially in the transforming and urbanized countries. In the transforming and urbanized countries, the labour and migration oriented strategies are more common, with shares of labour-oriented households varying from 18 per cent in Vietnam to 53 per cent in Ecuador. Among these households, wages from non-agricultural labour often contribute a large share of average labour income (as in Indonesia, Pakistan, and Panama), while non-agricultural self-employment earnings are more important in labour-oriented households in Ghana and Vietnam. In Bulgaria, Ecuador, and Nepal, agricultural wages are important for the income of labour-oriented households. Despite the importance of the labour pathway in transforming countries, market-oriented farming households remain the largest rural group in Vietnam. To pursue agriculture for development agendas, local, national, and global governance for agriculture need to be improved. Agriculture has been largely successful in meeting the world s effective demand for food. Yet more than 800 million people remain food insecure, and agriculture has left a huge environmental footprint. Managing the aggregate response of agriculture to rising demand will require good policy and sustained investments, Today s improved opportunities and greater willingness to invest in agriculture provide optimism that agriculture for development agendas can move forward. Promoting agriculture is imperative for meeting the Millennium Development Goal of halving poverty and hunger by 2015 and continuing to reduce poverty and hunger for several decades thereafter. Agriculture is likely to benefit from other general governance reforms that are now high on the agenda, such as decentralization and public sector management reforms. But reforms specific to using agriculture for development are yet to be widely implemented. There is also evidence that the political economy has been changing in favour of agriculture and rural development. Both rural civil society organizations and the private sector in agriculture value chains are stronger than they were in Democratization and the rise of participatory policy making have increased the possibilities for smallholder farmers and the rural poor to raise their political voice. OBJECTIVES To study the role of agriculture and allied sectors in reducing rural-urban income disparities and rural poverty. To understand how agricultural growth can reduce rural poverty, and Find out the causes of rural-urban disparity. TRANSFORMING COUNTRIES AND DEVELOPMENT In transforming economies (mostly in Asia and North Africa and the Middle East), agriculture contributes less to growth, but poverty remains overwhelmingly rural. The rising urban-rural income gap accompanied by unfulfilled expectations creates political tensions 2. A distinguishing feature of transforming economies is the widening gap between rural and urban incomes. Non-agricultural sectors now account for most of the economic growth. But the transition of people out of agriculture and rural areas is not keeping pace with the restructuring of economies away from agriculture. In China, longstanding policy impediments to labour mobility 3 kept the rural population behind Contact Us : info@arseam.com ; submit paper : editor@arseam.com download full paper : 9

4 Rajesh. P / Agriculture Development: Way to Move out of Poverty while urban economies were expanding rapidly. In India, the low level and quality of education of most rural workers is mainly responsible for their inability to find jobs in the booming services economy (World Bank 2008: 35-36). Challenges before transforming countries are reducing rural-urban income disparities and rural poverty. In transforming countries, with 600 million rural poor and 2.2 billion rural inhabitants, non-agricultural sectors have been the fastest growing in the world. In almost all parts of the world, rural poverty rates are higher than urban ones, and the depth of poverty is usually greater. In 2002, the poverty rate for rural areas in developing countries (30 per cent) was more than twice that for urban areas (13 per cent), using the $1.08-a-day poverty line (FAO 2006). Though the gap has been closing in many parts of the world, it has opened dramatically in East Asia and remained stable in South Asia. Differences in income between rural and urban areas illustrate the rural-urban disparity problem (World Bank 2008:46-48). Rural households human capital endowments tend to be dismally low. Rural-urban gaps in educational attainment and health outcomes remain large in most regions. Moreover, the quality of education is often drastically lower in rural areas. Access to quality health services is also much lower in rural areas. Poor health reduces agricultural productivity, and some agricultural practices contribute to health problems such as malaria, pesticide poisoning etc. (World Bank 2008:46-84). All these features of rural areas beget rural-urban disparity. The challenge is to improve the productivity of subsistence agriculture, diversify to new markets where possible, and open opportunities for non-farm work and migration as pathways out of poverty (World Bank 2008:46-48). The percentage of people living below the poverty line in India declined from 37.2 per cent in to 21.9 per cent in Of this, rural poor are 25.7 per cent and urban poor are 13.7 per cent during (Economic survey :233). While the all India poverty head count ratio is 21.9 per cent; states like Madhya Pradesh, Assam, and Uttar Pradesh, besides Bihar and Odisha had above all India poverty levels in However, in terms of rural poverty, both Odisha and Madhya Pradesh were at the top followed by Bihar and Assam (Economic survey :238). India, overall a transforming country, also has agriculture-based states such as Uttar Pradesh and Bihar and a few urbanized states. Similarly, Mexico, an overall urbanized country, also has some transforming states and two agriculture-based states. In contrast with this heterogeneity, all states of Brazil qualify as urbanized, and in China all provinces but Hainan are transforming. Transforming India has agriculture-based and urbanized states, and urbanized Mexico has transforming and agriculture-based states The transforming economies in Asia accounted for two-thirds of the developing world s agricultural growth. The major contributor to growth in Asia and the developing world in general was productivity gains rather than expansion of land devoted to agriculture. In these countries, agriculture is almost exclusively in the hands of smallholders. A singular characteristic Indian agriculture is the predominance of small and marginal farms (1.16 ha in ). However, empirical studies indicate that small size of land holdings are not a deterrent to increasing productivity, which is determined by focused research and investments, access to modern inputs, appropriate technology, and innovative marketing systems to aggregate and market the output efficiently and effectively (Economic survey :141). Continuing demographic pressures imply rapidly declining farm sizes, becoming so minute that they can compromise survival if off-farm income opportunities are not available. Because of demographic pressures and land constraints, the agenda for transforming countries must jointly mobilize all pathways out of poverty: farming, employment in agriculture and the rural non-farm economy, and migration (World Bank 2008: 21). In addition, a structural change in the composition of agriculture, showing diversification into horticulture, livestock, and fisheries, is noticeable. The horticulture sector contributed 30.4 per cent of agriculture and allied sector in GDP, while the livestock sector contributed over 4.1 per cent of the total GDP in (Economic survey :137). Rapidly expanding markets for high-value products especially horticulture, poultry, fish, and dairy offer an opportunity to diversify farming systems and develop a competitive and labour-intensive smallholder sector. Export markets for non-traditional products are also accessible because transforming countries have a comparative advantage in labour and management intensive activities. The livestock Contact Us : info@arseam.com ; submit paper : editor@arseam.com download full paper : 10

5 International Journal of Education & Applied Sciences Research, Vol.2, Issue 10,Nov- Dec , pp ISSN: (Online) ISSN: (Print) and aquaculture revolutions have been most notable in the transforming and urbanized countries of Asia and Latin America, driven by rising demand for poultry, pork, fish, and eggs with increasing incomes. In India the consumption of milk nearly doubled between the early 1980s and late 1990s (Delgado and others 1999.) Indian agriculture is broadly a story of success. It has done remarkably well in terms of output growth, despite weather and price shocks in the past few years. India is the first in the world in the production of milk, pulses, jute and jute-like fibres, second in rice, wheat, sugarcane, groundnut, vegetables, fruits and cotton production, and is a leading producer of spices and plantation crops as well as livestock, fisheries and poultry. The Eleventh Five Year Plan ( ) witnessed an average annual growth of 3.6 per cent in the gross domestic product (GDP) from agriculture and allied sector against a target of 4.0 per cent (Economic survey :173). India's agricultural exports are booming at a time when many other leading producers are experiencing difficulties. The better agricultural performance is a result of: a) farmers' response to better prices; b) continued technology gains; and c) appropriate and timely policies coming together. Yet India is at a juncture where further reforms are urgently required to achieve greater efficiency and productivity in agriculture for sustaining growth, reducing poverty in general, and rural poverty in particular. (Economic survey :173). As a concomitant of growth, the share of agriculture and allied sector in GDP declined to 15.2 per cent during the Eleventh Plan and further to 13.9 per cent in , of which share of agriculture was 11.8 per cent. While it still accounts for about 54.6 per cent of total employment (Census 2011). Agricultural growth has special powers in reducing poverty across all country types. Cross-country estimates show that GDP growth originating in agriculture is at least twice as effective in reducing poverty as GDP growth originating outside agriculture. For China, aggregate growth originating in agriculture is estimated to have been 3.5 times more effective in reducing poverty than growth outside agriculture, and for Latin America 2.7 times more. Rapid agricultural growth in India following technological innovations (the diffusion of high yielding varieties) in 1967 which is known as green revolution resulted in decline in rural poverty from 64 per cent to 34 per cent in 1986, and in China following institutional innovations (the household responsibility system and market liberalization) in agriculture in 1978 resulted in decline in rural poverty from 76 per cent to 12 per cent in Underuse of agriculture for development is not confined to the agriculture-based countries. In transforming countries with rapid growth in non-agricultural sectors, the reallocation of labour out of agriculture is typically lagging, leaving large numbers of poor people in rural areas and widening the rural-urban income gap. The farm population demands subsidies and protection. But weak fiscal capacity to sustain transfers large enough to reduce the income gap and continuing urban demands for low food prices create a policy dilemma. The opportunity cost of subsidies (which are three times public investments in agriculture in India) is reduced public goods for growth and social services in rural areas. Raising incomes in agriculture and the rural non-farm economy must be part of the solution. (World Bank 2008: 08). WAY TO MOVE OUT OF POVERTY Many rural households move out of poverty through agricultural entrepreneurship; others through the rural labour market and the rural non-farm economy; and others by migrating to towns, cities, or other countries. The three pathways are complementary: non-farm incomes can enhance the potential of farming as a pathway out of poverty, and agriculture can facilitate the labour and migration pathways. Livelihood strategies in agriculture are characterized by dualism between market oriented smallholder entrepreneurs and smallholders largely engaged in subsistence farming. There is a parallel dualism in the labour market between high-skill and low skill jobs, and between migrations with high and low returns (World Bank 2008:72). Contact Us : info@arseam.com ; submit paper : editor@arseam.com download full paper : 11

6 Rajesh. P / Agriculture Development: Way to Move out of Poverty In India, income from the non-agricultural sector the labour pathway out of poverty was an important driver of growth in rural areas between 1970 and Non-agricultural employment also had important indirect effects by increasing agricultural wages. In Tanzania, too, business and trade provided an important pathway out of poverty, but only for those with networks in well-connected communities. In addition, remittances from both domestic and international migration have reduced rural poverty, as happened in rural China and Nepal. (Du, Park, Foster, Kijima, Lanjouw, Lokshin, McCulloch) Migration can offer a pathway out of poverty for those who leave and for those who stay behind. Several pathways often operate at the same time. In Bangladesh and Tanzania, the farm, non-farm labour, and migration pathways were all successful. In Indonesia, some people moved out of poverty through then farming pathway, others through the non-farm pathways (World Bank: 2008). The farming, labour, and migration pathways have often enhanced each other. In the Philippines, the green revolution allowed children of land reform beneficiaries and large farmers especially daughters to attain high levels of education. These highly educated offspring are now sending large transfers back to farm households. In Pakistan, remittances from temporary migrants have a large impact on agricultural land purchases, and returning migrants are more likely to set up a non-farm business (World Bank: 2008:74). POLICY TO REDUCE RURAL-URBAN DISPARITY AND POVERTY One policy response is facilitating faster absorption of the agricultural labour force in the urban economy through investments in human capital and labour market policies, such as vocational training, transport services, and job matching. But the time lags in educating people are substantial. Moreover, the same policies also make migration more attractive, inflating the pool of urban unemployed, leading to urban congestion and the urbanization of poverty (World Bank 2008: 36). Complementing these policies with those that foster rural income growth and slow migration out of the traditional sector can provide important synergies (Fields 2005; Karp 2007). The first strategy is to establish efficient markets and value chains. The second is accelerating smallholder entry to agricultural markets and raising smallholder innovativeness and competitiveness. The third is improving livelihoods and food security in subsistence agriculture and low-skilled rural occupations. The fourth is increasing employment and investment opportunities in the rural economy while enhancing skills to allow the rural poor to seize these opportunities or to successfully migrate. Together they drive the three pathways out of poverty farming, rural employment, and migration (World Bank 2008: 228). The Asian green revolution initially stimulated the demand for labour and reduced poverty through yearround employment and higher real wages. However, later adoption of direct seeding, tractors, and threshers led to a subsequent decline in agricultural employment in India and the Philippines. The high-value revolution is creating a second wave of employment growth. Horticulture, livestock, and other high-value activities offer considerable potential for employment generation and productivity growth. One of the best prospects for reducing rural poverty is the potential for rural residents to participate in the urban economy by commuting, while retaining their rural residence and their foothold in farming. In northeast Thailand, the greater availability of non-farm jobs in nearby cities led to significant improvements in income. Reflecting the greater integration of rural and urban labour markets, the disparity between rural and urban wages is declining in many economies. In India, while agricultural wages remain low, there is evidence of convergence between rural non-agricultural wages for casual workers and urban wages (World Bank 2008: 216) CONCLUSION Because the majority of the world s poor work in agriculture and the poor suffer disproportionately from illness and disease, taking an integrated view of agriculture and health is necessary to address poverty and promote agriculture for development. The potential of agriculture to contribute to growth and poverty reduction depends on Contact Us : info@arseam.com ; submit paper : editor@arseam.com download full paper : 12

7 International Journal of Education & Applied Sciences Research, Vol.2, Issue 10,Nov- Dec , pp ISSN: (Online) ISSN: (Print) the productivity of small farms. The vast majority of farmers in developing countries are smallholders, and an estimated 85 per cent of them are farming less than two hectares. The literature linking household s asset endowments to agricultural productivity has long emphasized an inverse relationship between farm size and factor productivity. Both theory and empirical evidence have shown that such a relationship is common when imperfections in both land and labour markets are large. The inverse relationship is a powerful rational for land access policies that redistribute land toward smallholders, increasing both efficiency and equity. Three powerful and complementary pathways out of poverty are smallholder farming, off-farm labour in agriculture and the rural non-farm economy, and migration. Growth in agriculture and the rural non-farm economy is needed to reduce rural poverty and narrow the urban-rural divide. Successfully meeting the disparity problem in transforming countries can make a huge dent in reducing world poverty. ENDNOTES: 1. For much of the developing world, smallholders are defined as operating a farm of 2 hectare or less. 2. Schultz 1978; Hayami 2005; and de Gorter and Swinnen 2002 particularly emphasize the importance of the relative income hypothesis (as opposed to absolute poverty) in understanding agricultural policy making. 3. The hukou or household registration system has increasingly been relaxed over the past years REFERENCES Delgado, Christopher, Mark Rosengrant, Henning Steinfeld, Simeon Ehui, and Claude Courbois (1999), Livestock to 2020: The Next Food Revolution. Rome: FAO, Food, Agriculture and the Environment, Discussion Paper 28. Delgado, Christopher, Nicholas Minot, and Marites Tiongco (2005), Evidence and Implications of Non- Tradability of Food Staples in Tanzania Journal of Development Studies 41(3): Du, Yang, Albert Park, and Sangui Wang (2005); Migration and Rural Poverty in China, Journal of Comparative Economics 33(4): Economic Survey ( ), Government of India, New Delhi. FAO (2006) FAOSTAT. Rome, Food and Agricultural Organization (FAO). Fields, Gary (2005), Welfare Economic Analysis of Labour Market Policies in the Harris-Todaro Model. Journal of Development Economics 76(1): Foster, Andrew D; and Mark R. Rosenzweig (2004); Agricultural Productivity Growth, Rural Economic Diversity, and Economic Reforms: India, , Economic Development and Cultural Change 52(3): Karp (2007), Managing Migration from the Traditional to Modern Sector in Developing Countries. Background paper for the WDR Kijima, Yoko, and Peter Lanjouw (2004), Agricultural Wages, Non-farm Employment and Poverty in Rural India. World Bank. Washington, DC. Processed. Lanjouw, Peter Does the Rural Nonfarm Economy Contribute to Poverty Reduction? In Steven Haggblade, Peter Hazell, and Thomas Reardon (eds.) Transforming the Rural Nonfarm Economy, Baltimore, MD: Johns Hopkins University. Lokshin, Michael, Mikhail Bontch-Osmolovski, and Elena Glinskaya Work Migration and Poverty Reduction in Nepal. World Bank. Washington, DC. Processed. McCulloch, Neil, Julian Weisbrod, and C. Peter Timmer Pathways Out of Poverty During An Economic Crisis: An Empirical Assessment of Rural Indonesia. World Bank. Washington, DC. Processed. Contact Us : info@arseam.com ; submit paper : editor@arseam.com download full paper : 13

8 Rajesh. P / Agriculture Development: Way to Move out of Poverty World Bank (2008), Agriculture for Development, World Development Report, Washington, DC, The World Bank. Schultz, Theodore W. (1978), Distortions of Agricultural Incentives (eds.). Bloomington, IN: Indiana University Press. Hayami, Yujiro (2005), An Emerging Agriculture Problem in High- Performing Asian Economies. Paper presented at the 5 th Conference of the Asian Society of Agricultural Economists (Presidential Address). August 29. Zahedan, Iran. de Gorter, Harry, and Johan Swinnen (2002), Political Economy of Agricultural Policy. In Bruce Gardner and Rausser Gordon, (eds.), Handbook of Agricultural Economics. Amsterdam: Elsevier. Contact Us : info@arseam.com ; submit paper : editor@arseam.com download full paper : 14